SANJAY SEHGAL, University of Delhi - Department of Financial Studies
Email: alkas99@yahoo.com
SAKSHI JAIN, Sakshi Jain
Email: sak1787.sakshi@gmail.com

Momentum strategies have drawn great attention in investment management literature over last two decades. In this paper we examine three important propositions in Indian context (1) Do momentum profits persist for long time periods?, (2) Can these momentum profits be absorbed by risk models?, and (3) Is stock momentum an outcome of sectoral momentum?.We develop 6-6 and 12-12 investment strategies based on past returns as well as company characteristics. We find momentum profits in Indian context for our prior return portfolios which are stronger for 6-6 compared to 12-12 strategies. These momentum profits are larger for some characteristic sorted portfolios. Risk models such as CAPM and Fama French model significantly fail to capture momentum profits. In fact, winner portfolios generally comprise of large firm and high P/B stocks, thus defying the risk story. Some zero investment momentum based trading strategies do provide significant payoffs. We also observe momentum profits in sectoral returns. A part of stock momentum profits is captured by sectoral factor, thus implying that it may mainly be an outcome of sectoral momentum. Our findings are pertinent for portfolio managers and investment analysts who are continuously in pursuit of trading strategies that provide abnormal returns.

ALOK KUMAR, University of Texas at Austin
Email: akumar@mail.utexas.edu
JEREMY K. PAGE, University of Texas at Austin - Department of Finance
Email: jeremy.page@phd.mccombs.utexas.edu
OLIVER G. SPALT, Tilburg University - Department of Finance
Email: o.g.spalt@uvt.nl

Using a large database of portfolio holdings and trades of retail and institutional investors, we identify several investor habitats and show that investors' correlated trading activities generate return comovements among stocks within those habitats. Motivated by the recent literature on comovements, we focus on geography- and price-based return comovements but also consider other types of comovements. We find that both retail and institutional investors specialize and exhibit a high propensity to trade stocks that have similar characteristics. Further, investors' trading activities within their respective habitats are correlated, where retail trades exhibit stronger correlations. Examining the trading-comovement relation, we find that correlated retail trading generates comovements within geography- and price-based stock categories while informed trading by institutions weakens those comovement patterns. The comovement patterns are stronger among stocks that have lottery features, are located in regions where gambling propensity is high, and are held by retail investors who exhibit a greater propensity to gamble. Across time, trading correlations and comovements are amplified during periods of greater market-level uncertainty and stronger consumer sentiment. Overall, our results provide direct empirical support for the habitat-based return comovements model proposed in Barberis, Shleifer, and Wurgler (2005).

MOBAREK ASMA, Stockholm Business School
Email: amo@fek.su.se

The study tested the mean reversion characteristics of an emerging market using daily Index return and individual companies daily return listed on the Botswana Stock Exchange (BSE) during 2000 to 2007 sample period. The findings from the uni-variate and panel unit root tests suggest that the stock return series are not non-stationary or mean reversion reject the Efficient Market Hypothesis (EMH). The implication of the study is to improve the important aspects of financial market development in emerging markets; and it provides an important input for the investor’s to take appropriate investment strategies. Finally, the study reflects the properties of time series returns in emerging market that contributes to the existing literature and asset pricing.

TRAVIS SAPP, Iowa State University - Department of Finance
Email: trasapp@iastate.edu

The 52-week high share price has been shown by George and Hwang (2004) to carry significant predictive ability for individual stock returns, dominating other common momentum-based trading strategies. This study examines the performance of trading strategies for mutual funds based on (1) an analogous 1-year high measure for the net asset value of fund shares, (2) prior extreme returns and (3) fund sensitivity to stock return momentum. All three measures have significant, independent, predictive ability for fund returns. Further, each produces a distinctive pattern in momentum profits, whether measured in raw or risk-adjusted returns, with profits from momentum loading being the least transitory. Nearness to the 1-year high and recent extreme returns are significant predictors of fund monthly cash flows, whereas fund momentum loading is not.

DONG LOU, London School of Economics & Political Science (LSE)
Email: d.lou@lse.ac.uk

This paper provides empirical evidence that managers adjust firm advertising expenditures in order to influence investor behavior and short-term stock prices. First, this paper shows that increased advertising spending is associated with a contemporaneous rise in abnormal stock returns, which is then reversed in subsequent years. Moreover, increased advertising is related to the stock purchases of individual investors - as measured by changes in the aggregate institutional ownership and small-trade imbalances. Finally, there is a significant rise in firm advertising expenditures prior to insider sales and seasoned equity offerings. This large increase is followed by a significant decrease in advertising expenditures in the subsequent year. This pattern of advertising expenditures is consistent with the idea that managers are exploiting the return effect induced by advertising to the benefit of the existing shareholders and/or themselves.

TURAN G. BALI, CUNY Baruch College - Zicklin School of Business
Email: TURAN_BALI@BARUCH.CUNY.EDU
NUSRET CAKICI, Fordham University
Email: cakici@fordham.edu

This paper determines whether the world market risk, country-specific total risk, and country-specific idiosyncratic risk are priced in an international capital asset pricing model (ICAPM). The paper also tests if the price of risk associated with each factor is common across countries.

Portfolio-level analyses, country-level cross-sectional regressions, stacked time-series, and pooled panel regressions indicate that the world market risk is not, but country-specific total and idiosyncratic risks are significantly priced in an ICAPM framework with partial integration. In addition, the prices of total and idiosyncratic risks are significantly different across 37 countries considered in the paper. This result is robust to different methods for estimating risk measures, different investment horizons, and after controlling for the countries’ aggregate dividend yield, earnings-to-price ratios, inflation risk, aggregate volatility risk, and past return characteristics. The main findings turn out to be insensitive to the choice of one-factor versus multifactor models used to estimate systematic and idiosyncratic risk measures.